Financial Planning & Budgeting Flashcards

A cleaning technician is classified as an independent contractor rather than an employee. What is the primary financial implication for the business owner?

Answer: Owner does not withhold payroll taxes for the contractor

Independent contractors handle their own taxes, so the business owner is not required to withhold income tax, Social Security, or Medicare from their pay.

What does the term 'accounts receivable' refer to in a cleaning business context?

Answer: Money clients owe the business for services already rendered

Accounts receivable represents money that customers owe the business for cleaning services that have already been completed.

A cleaning business purchases a commercial vacuum for $1,200 with a 4-year useful life. Using straight-line depreciation, what is the annual depreciation expense?

Answer: $300

Straight-line depreciation = $1,200 / 4 years = $300 per year.

Which of the following is considered a variable cost for a residential cleaning service?

Answer: Cleaning supply costs per job

Cleaning supply costs change directly with the number of jobs completed, making them a variable cost.

A cleaning company offers a 10% discount for clients who prepay for 12 months. This strategy primarily helps the business with:

Answer: Improving cash flow by receiving payment upfront

Prepayment programs bring cash into the business immediately, improving short-term liquidity and reducing the risk of non-payment.

What is the purpose of a profit and loss (P&L) statement review at the end of each quarter?

Answer: To evaluate financial performance and identify cost or revenue trends

A quarterly P&L review allows owners to track whether the business is profitable and spot spending or revenue patterns that need correction.

If a cleaning business has total monthly revenue of $8,000 and total expenses of $5,600, what is the net profit percentage?

Answer: 30%

Net profit = $8,000 - $5,600 = $2,400; net profit % = $2,400 / $8,000 × 100 = 30%.